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BCG Medium Product Pricing Business Model Selection

The Pricing Games

#Technology #E-sports #Gaming
ProHub Comment

This case tests quantitative profitability analysis alongside qualitative strategic thinking. Candidates must calculate revenues and costs across three distinct business models, recognize that subscription and free-to-play have identical absolute profits but different strategic implications, and synthesize market research data to make a forward-looking recommendation that balances short-term financials with long-term competitive positioning.

Estimated Time 15 minutes
Difficulty Medium
Source NYU
50 / 100
Your client is Next Level Gaming (NLG), a start-up in the E-sports and computer gaming industry based in Los Angeles, California. NLG is planning to launch its first game – an online, multiplayer role playing game that is unlike any existing franchise. Being a new player in the industry, NLG’s CEO, Bobby Beck, has asked for your help in deciding its business model. The company is considering 3 alternatives: a subscription model where players pay a monthly fee; a retail model where players pay full price at initial purchase, and a free-to-play model where the game is free to play but charges players for in-game merchandise. How would you advise NLG to proceed?

Clarifying Information

  1. Time frame: NLG is looking to launch immediately.
  2. Competition: The online gaming industry is dominated by 3 major players who control 35%, 25%, and 20% share respectively. There is a long tail of smaller gaming companies.
  3. Target Market: Based on preliminary market research, NLG expects the majority of players to be between the ages of 21 to 40.
  4. Geography: NLG is planning to launch its game in the US only.
  5. Platform: NLG’s game is compatible for both Apple and Windows computers
  6. R&D Cost: NLG spent 10 million USD to develop its first game (the candidate should recognize this as a sunk cost and not factor it into the decision)